Waiting for Cheaper Heat
The question
The market for home heating oil in the town of Vernhold is initially in equilibrium. Credible forecasts published this week convince Vernhold households that they will pay far less per gallon next month, and nearly every home has a storage tank that still holds enough oil to last past then. Assume the quantities dealers are willing to sell at each price this month are unchanged. Show the effect on this month's market for home heating oil. Show the effect on the Supply and Demand graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Waiting for Cheaper Heat: the worked answer
On the Supply and Demand graph, Demand shifts left.
Why Demand shifts left
Buyers' expectations about future prices are a determinant of demand. Because households expect heating oil to be much cheaper next month, and their tanks hold enough oil to let them wait, they want to buy less at every price this month, so the demand curve shifts left. The quantities dealers are willing to sell at each price are unchanged by assumption, so no supply determinant moves and the supply curve stays put.
What happens to the equilibrium
This month's equilibrium price of heating oil falls and the equilibrium quantity purchased this month decreases.
The mistake students make on this one
Many students shift demand right, reading "cheaper oil" as a reason to buy more. The cheap oil arrives next month, and the only way households can act on that today is by waiting, which reduces what they want to buy at every current price and pulls this month's demand left.
On exam day
Expected future price and current demand move in the same direction: buyers expecting a higher price later rush in now, buyers expecting a lower one hold off, so the demand curve moves the way buyers expect the price to go.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Demand shifts left and every other curve on the Supply and Demand graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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